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Tuesday, December 1, 2009

A Paper on Stabilizing Nominal Spending

Given the recentdiscussion on stabilizing nominal spending as a policy goal I found this article by Evan F. Koenig of the Dallas Fed to be interesting:

The article shows that the optimal monetary policy rule in such an economy has the Federal Reserve target a geometric weighted average of output and the price level. In a realistic special case, the monetary authority should target nominal spending. [emphasis added]

This is an accessible article that makes use of standard AD-AS model with sticky wages. It also reaches conclusions about the relationship between nominal spending and deflation similar to the ones I discuss in this paper.